China’s most sacred institution–education–has fallen off its pedestal. The system is no longer immune to the kind of pervasive corruption that affects the rest of Chinese society. When Beijing instituted market-oriented school reforms in the mid-1990s, cutting subsidies and loosening state control, it aimed to increase competition, efficiency and educational opportunities. But inadvertently, it also opened the floodgates to corruption. From preschools to postgraduate programs, educators are fast becoming businessmen–and education itself is turning into a commodity whose value is cheapened in the process. At the highest levels, Chinese education still shines: the top universities produce some of the finest engineers in the world, and Chinese students abroad consistently outpace their local counterparts. But the corruption unleashed by market forces–largely unchecked by Beijing–has shaken the integrity of the system and the myth of meritocracy.

For a large swath of history, China’s education system was a glorious anomaly: in a world defined by class, it was built on merit. With good schooling, it was said, even a peasant boy could lift himself out of poverty and become a member of the Confucian ruling elite. Today, as the gulf widens between rich and poor, a good education is still seen as the difference between a lucrative job at a top firm and a subsistence income in state industry. But the system, like much of China, is being distorted by cash, connections and counterfeits: instead of narrowing the rich-poor divide, the unofficial cost of education may be widening it. What begins as parents’ giving small bribes to reserve a spot in a kindergarten class often turns into far more costly “admissions fees” by the time their children enter high school. At the university level, corruption gets even worse: rich students can pay for good grades, or for out-and-out fake transcripts, reference letters and diplomas.

Loosening the reins on schools sparked an educational boom: thanks to the proliferation of private schools, the number of Chinese students attending university has jumped nearly threefold in the past four years, from 1.08 million in 1998 to nearly 3 million today. Most of those are bright and capable graduates. But in the intense atmosphere in Chinese schools, being nearly the best can be far from enough. Those who aim to matriculate at the most prestigous schools and fall short have begun to realize that a well-placed bribe can put them over the top. They’re thus learning precisely the wrong lessons about how to get ahead: do your homework, work hard and use all the devious means at your disposal to acquire what you might not achieve.

The system is dangerously self-perpetuating. Liu Dagang, 27, remembers paying his college’s Communist Party secretary $120–a large sum for a rural matriculant–to ensure that he would get a proper job after graduation. Now, Liu (not his real name) teaches at a boarding school for rich kids in Zhejiang province, and he gets bribes early and often: banquet dinners, a $125 necklace, $1,000 in cash. Liu used to be uncomfortable receiving such gifts, but he now accepts them as a part of his job, like grading papers. “Many people are angry about corruption,” he says. “But if they were in that position, they would be very happy to receive money.”

Such educators are preying on desperation. Many parents, especially those in urban areas where the one-child policy has been enforced more stringently, invest all their hopes on their lone offspring. “Parents will do anything to help their children get an education,” says one university administrator in Shanghai. Like many Chinese parents, Shanghai teacher Huang Yaqin and her husband pay special tutors about $50 a month to teach their 16-year-old son how to pass the senior-high-school admissions exam. But if their son happens to fail the exam, Huang says she is prepared to pay special admissions fees of up to $3,600–more than her and her husband’s combined yearly income–to influence school administrators. “There’s nothing else I can do,” she says.

It’s not simply the parents who are desperate. Educational reforms have removed many of the subsidies schools and universities once depended on. Administrators are now obliged to raise money on their own, which lowers their resistance to bribes. And the admissions process can be the most lucrative transaction of all. If students miss the entrance-exam cutoff score by a few points, they can easily “buy” their way in: it costs $1,200 to $3,600 for a prestigious high school and more for a university slot. Those who score worse can still get in with a big enough bribe. Says one university administrator in Beijing: “Every university engages in this, even the top schools.”

–Once students are enrolled, the payoffs sometimes continue. A teacher in Beijing tells of a student trying to shove a roll of 100-yuan notes–totaling several hundred dollars–into his pocket before final exams. Watered-down Ph.D. programs are fetching $5,000 and M.B.A.s can run as much as $30,000. A simple undergraduate education can be had for much less: touts, quietly advertising their merchandise to passers-by, sell fake diplomas for as little as $25 outside the front gates of Beijing’s universities. Yang Dongping, a professor at the Beijing Institute of Technology, estimates that there are at least half a million fake diplomas held by supposed graduates in China.

Like everything else in China, this corruption is up for export, too. Chinese students often score near the top on standardized tests, such as the GRE and GMAT. But the crush of students wanting to study abroad has spawned a profusion of test-preparation schools that teach them how to bend, and sometimes break, the rules. One Beijing center guarantees that its “qiang shou”–or “hired guns”–will score at least 700 on the GMAT; more than 100 clients have taken them up on the offer, at $5,000 a pop. In August, when live GRE test questions were posted on the Internet in China, the Educational Testing Service suspended the test’s computer version in China, warning graduate schools that GRE scores from China may be inflated by 100 points due to cheating.

The New Oriental School, the most popular test-prep school in China, is ETS’s biggest target. Last year, ETS sued New Oriental, which caters to more than 150,000 students, alleging that the school stole its tests and used them to cheat on exams. The school admits only that it used ETS materials, and says it has now stopped doing that. But one enthusiastic young teacher still boasts about using ETS tests to help students ace the exams–and for about $1,200, he’ll concoct the rest of a student’s application package. His entrepreneurial energy is admirable. But he may be just what China doesn’t need right now: another teacher who will go the extra mile, and then take his students all the way to the bank.